Management Unit 1: Introduction + corporation and its stakeholders

Introduction to the economic activity

What is economic activity?

The use of scarce resources to produce and exchange goods

What is management?

A set of decision to acquire, allocate, and integrate resources to create value

What is a business firm?

A firm that produces economic goods or services (it creates value when coordinated towards the same output).

What characterizes an economic good?

Its value. It creates value for someone and requires limited resources

What are the types of organizations?

Business firms (for profit), non-profits, and state/public organizations

When do partnerships work better?

With few people, high trust, low complexity and low risk

What are the good characteristics of partnerships? (they are 4)

Being simple, trust-based, direct control and fast decision-making

What are the bad characteristics of partnerships? (they are 4)

Hard to grow, personal liability, profits and controls are shared and partners bind each other (each partner can act on behalf of the partnership, and their actions can affect the others.)

What are the characteristics of corporations? (they are 6)

1) based on pool capital (investors)
2) have limit risk (don’t invest personal wealth)
3) survive beyond founders, transferable assets (ownership can move)
4) have rules for decision-making
5) have legal personality (own assets, etc)
6) centralized management

What is the managers main goal?

Achieve economic results while creating value for stakeholders

What is the stakeholder analysis?

Identifying the firm’s relevant stakeholders and understand their interests, power, and alliances within eachother.

What are focal organizations?

The organization from which the analysis is made from (the point of view)

State some pros and cons of Amazon and why is it hard to manage?

Pros: extremely profitable and successful size wise

Cons: caused loss in retail jobs, put companies out of business, harsh and dangerous work culture, fights unions

Hard to manage due to complex net (of stakeholders)

What is the general systems theory?

All organism belong to a vast global business system. They are all open to interact with their external environment although most organisms have clear boundaries. They can’t be understood on isolation.

Society and businesses are interdependent because?

Because they belong in an interactive social system where they need and influence eachother.

What does the shareholder theory of the firm say?

Also known as the ownership theory it says a firm is supposed to maximize profits for shareholders and have no other obligations except the ones specified by the law.

What does the stakeholder theory of the firm say?

That all stakeholder’s interests must be considered and that firms have a broad public purpose to create value for society.

According to the stakeholder theory why is it important to prioritize all stakeholders?

To achieve durable profitability (long-term)

What are the 3 core arguments of the stakeholder theory and what do they say?

• Descriptive: stakeholder view is a more realistic description of how the companies really work (see more than financial performance)

• Instrumental: it is more effective to consider all stakeholders since good relationships create a value. Having a responsible behavior helps with long-term finances.

• Normative: considering all stakeholders is the right thing to do. Its a two way street where stakeholders create value for the firm and the firm gives value to stakeholder.

What is a fiduciary?

Someone who exercises power on behalf of another (managers)

What are Market Stakeholders?

Stakeholders who engage in any type of economic transactions (it can be unique or two-way exchange)

Who are some of the Market Stakeholders and what role do they play?

• shareholders: invest (give money) and receive dividends or capital gains

• creditors: give loans and collect payments of interest and principal

• employees: give their skills in exchange of wage and other compensations

• wholesalers

• distributors

• retailers

• etc.

What are dividends?

Payments made by a company to its shareholder

What are capital gains?

Profit earned when an investment is sold for more than its purchase price.

What are interest payments?

Money paid by a borrower to a lender as the cost of borrowing money.

What are principal payment?

Repayment of the original amount borrowed, excluding interest.

What are Nonmarket Stakeholders?

Stakeholder that do not engage in direct economic exchange

Who are some Nonmarket Stakeholders?

• community (depends, might have business support groups)

• government (depends)

• NGO

• competitors

• etc.

What is the difference between internal and external stakeholders?

Internal stakeholders are employed by the firm

What is a role set?

something with multiple stakeholder roles

What are the two steps of stakeholder analysis?

1) identify the issues

2) ask the questions

What are the four questions to be asked in stakeholder analysis?

1) Who are the relevant stakeholders?
2) What are their interest? (so what do they want with the firm)
3) What is their power?
4) How are coalitions (stakeholder networks that can change) likely to form?

What powers do stakeholders have within a firm?

• voting power: proportional to percentage ownership

• economic: stop giving money, stop working, etc.

• political: legislation

• legal: sue

• informational: access to valuable data or sharing perspectives (online)

What does the idea stakeholder salience say?

Managers can pay more attention to grater salience (legitimacy and urgency)

What is a stakeholder map and why might it be relevant?

visual representation of stakeholder relationships taking into count the four important questions and they help managers think outside the box.

What is a Boundary-Spanning department and why are they good or bad?

Departments or offices inside a firm that reach across the division of the company and interact with the external environment, connecting the company to people/groups. They are good because they create mutually beneficial relationships.

What does a dynamic force do?

Shapes the business-society relationship

What are the 5 dynamic forces?

• Changing social expectations: balancing social, legal, economic, etc obligations

• Growing emphasis on ethnical reasoning and actions

• Evolving government regulations and business responses: government regulations are a pendulum between advances and retreats so businesses develop strategies to have influence over them and not be affected by their dynamic

• Dynamic natural environment: sustainability and environment capacity

• New technology and innovations: challenges privacy, etc.

When is a business considered successful and effective?

When it meets all economic, social, and environmental objectives/expectations

What happened in the UBER case and what was its major gap?

An accident happened during an app-on pause. The major gap in the case was eliminating the insurance loophole of app-on gap, creating regulation.

What was Uber’s response to the accident?

First they opposed it and any responsibility towards it. Then they recognized the limit when support for creating a regulation kept increasing so they negotiated specific insurance terms and made a compromise to society.

Who are the market and non-market stakeholders of the uber case and state whether they have high or low power and oppose or support closing the gap (creating legislation)

Market:

• Uber: high power and opposes due to high insurance costs

• Drivers: low power individually and support

• Costumers: high power collectively and support. some oppose due to higher prices

• Insurance companies: high power and support

Non-market:

• Governments: high power and support

• Diver associations: support

• High-tech trade association/allies: high power and oppose due to the precedent for broader regulation

• Competitors: high power and support. some oppose due to cost escalation.

• Media/public: low power alone and support

• Attorneys

What is Patagonia and why does it stand out?

Patagonia is a private company that started from ‘existential dirtbags’. It stands out due to high prices and high success and the result of preserving its values while still being able to grow the company.

What is weird from Patagonia management?

They manage by absence.

What are Patagonia’s main brand characteristics?

• emphasis on quality

• environmental impact

• innovation (research and tests)

• good logistics and production

How is Patagonia’s logistics and production different?

They have no mass-market retailers distribution and they have a strong repair and refund policy.

What is Patagonia’s main goal towards costumers?

Produce simple and functional products that create a responsible consumption culture.

What is different from Patagonia’s costumer experience?

In-store experience feels like a community and online experience is personalized. Costumers feel a personal connection and employees feel like family

What is different about Patagonia’s product testing?

They do actual field-testing with professionals and make sure to use the more sustainable materials.

Why does Patagonia charge so high?

Because they waste more money than usual on quality, environmental impact, research, logistics, etcl

What is different about Patagonia’s marketing and why?

They was less than 1% of profits on marketing because they don’t want to increase consumption. They only use marketing for education and truthful purposes. Most of their marketing is free publicity despite having some controversies.

What did Patagonia invest on as other companies grew similar?

Continuous technology and patents

What is Patagonia’s overall evaluation?

They are not perfect, but they prioritize no/reducing harm

What was one of Patagonia’s ideas that didn’t work and why?

Patagonia wanted to do a reuse/swap campaign and even implement paid returns but increasing their RRRR idea would increase a lot of costs (small to no profit).

What was one of the challenges Patagonia faced?

Issues with finding sustainable supply and vendor and initial quality problems.